Several recent broadcast trade press articles summarized a Public Notice released this past week by the FCC’s Media Bureau. The Notice deals with the processing of certain broadcast applications when a licensee has a pending “remedial” petition for declaratory ruling seeking to correct noncompliance with the Commission’s foreign ownership rules. The articles suggest that the Public Notice would have wide impact, and that several pending applications would be held up by the FCC’s new processing policy. In fact, this decision is limited in its application only to broadcasters who, through no fault of their own, find that they no longer comply with the foreign ownership limits set out in Section 310(b) of the Communications Act and ask in a “remedial petition” for what is essentially retroactive approval of the foreign ownership that exceeds the 25% limit imposed on aggregate foreign interests (voting or equity) in companies that control broadcast licensees.
The Public Notice does not deal with companies who ask for permission to have foreign ownership in excess of 25% in advance of those owners acquiring their interests. In cases where a controlling interest in the company is proposed to be held by foreign owners who have not previously been approved by the Commission, specific FCC approval is required for that acquisition to occur through a forward-looking petition for declaratory ruling. That is not a “remedial petition.” Similarly, the Public Notice has no impact on companies that filed Petitions seeking approval for future changes in ownership that would exceed the 25% ownership threshold but would not involve a change in control. Where a company is seeking advance approval for a non-controlling foreign interest in excess of 25%, the processing of currently pending applications by the company should not be impacted.
In what situations would a broadcaster find itself having to file a remedial petition triggering the new processing policy? The Commission has recognized that broadcast companies, through no fault of their own, may discover that changes in investors in the company have resulted in it having more than 25% of its equity or voting stock being held by foreign investors. Rather than penalize a company that unknowingly ends up in violation of the 25% threshold, the FCC allows the company to either eliminate the issue (by, for instance, redeeming the stock of a foreign investor) or by filing a remedial petition seeking retroactive approval of the foreign investment.
This situation is most likely to come up in companies with publicly traded stock where foreign shareholders buy enough stock in the public market to push the company above the 25% limit on aggregate foreign ownership (either as a percentage of control or of equity). As noted in the Public Notice, public companies have long been able to file these remedial petitions. But companies that are not publicly traded can also find themselves in violation of the limits, and the FCC recently agreed (in a Report and Order we noted here) to allow these companies to also use the remedial petition filing process.
A private company can find itself in need of such a petition in many ways. For instance, a company may have equity that is owned by various investment funds. At the time the company acquires its broadcast stations, the funds may have foreign ownership that, when aggregated with other foreign ownership or control from other investors, does not exceed the 25% threshold. If, at some point after the company acquires its stations, one of the investors in a fund sells its interest in the fund to a foreign investor, that sale, by increasing the percentage of the equity of the fund that is considered “foreign” in an FCC analysis, when aggregated with other similar foreign ownership investments in other equity holders of the broadcast station’s parent company, may put the broadcast company over the 25% threshold. Then, the broadcast company either must fix the problem or file a remedial petition to get approval for exceeding the 25% threshold. As the broadcast company in most cases would have no control over the sale of interests in an investment fund that has invested in the broadcast company, it could likely use the remedial petition process.
The Public Notice addresses how the Bureau will deal with various station applications filed by broadcasters with these pending remedial petitions. Assuming that the remedial petition is complete and there are no evident compliance concerns, the Notice allows the normal processing of some routine applications (such as STA requests or minor change applications). Applications involving assignments, transfers of control, and similar ownership changes may be processed too, but they may be granted subject to conditions tied to the outcome of the pending petition, such as limiting the involvement of the foreign owner who has not yet been approved and allowing for enforcement action should the remedial petition be found to be defective. The Notice notes that, in some cases (for instance where the company seeking the remedial petition is the seller), no conditions on the grant of an assignment or transfer may be needed and those applications could proceed normally. Other applications (including license renewal applications, new station construction permits, major modification applications, and licenses to cover) will generally be put on hold until the foreign ownership issue is addressed, as the Commission does not want to authorize a new license for a company until the Commission is sure that the company’s foreign ownership has been approved.
This Notice is part of the Commission’s attempt to clarify the processing of petitions seeking approval of foreign ownership or control above the 25% threshold. We noted that the Commission earlier this year issued a Report and Order which tried to articulate clear standards for processing Petitions for Declaratory Ruling seeking permission for a company to exceed the 25% threshold, including discussing how these rules apply to non-profit, non-stock licensees. In that Order, the Commission directed the Bureau to adopt processing policies resulting in this week’s Public Notice. For companies that find themselves inadvertently above the 25% limit, this notice tells them what to expect from the FCC while their remedial petition is pending.
Foreign ownership of broadcast properties is a complicated subject with many details and legal nuances that must be considered (see, for instance, our articles here and here) – so be sure to consult with experts on those nuances to ensure your compliance with the rules.